maandag 29 november 2010

€UROTHINK



HOW TO DEAL WITH KING CHAOS, part 5.

The euro is under pressure. Banks allow less credit, just now people and businessmen need it so bad. As a consequence people and business leaders think and talk themselves into a state of panic. Completely overdone. International rescue is active behind the scenes and on stage. And we have a superhero in our midst, called €URO.

by Frank van Empel

Let’s talk about money. Yesterday, November 28, 2010 the European Union (EU) and the International Monetary Fund (IMF) decided to bail out Ireland, the second victim of structural overspending, after Greece. Who is the next candidate in the European default dominoes game to tumble? All analysts bet on Portugal. And so it will be Portugal. Once fear grasps the minds of investors, they behave in ways that make those fears a reality. Portugal has a high debt, meager growth and political disarray, the storytellers say. An easy prey for money hunters and speculators.

Spain will be next in the doom-scenario, but that will change the game. Spain is too big to fail and too big to bail out as well. It has a trillion (1.000 billion, or 1.000.000.000.000) euro in public debt and on top of that almost a trillion of foreign liabilities of the private sector: houses, financial institutions, corporates. As a matter of fact Spain is running a current account deficit for some time to finance an excessive spending of the private sector. It has to attract investors from abroad that want to buy bonds from the government for a certain return (interest) to fill up the gap. If investors become aware of the default risks they’re going to ask a higher return. Et ceterablabla.

Stop!

The point I want to score is that King Chaos again shall make it clear for insiders as well as outsiders that reality is no dedicated follower of expectations. The reason why is simple. There are too many interrelationships between nations, organisations, consumers, et cetera to handle by a human mind. The becoming of reality is a black box containing several ‘chemical’ and social-economic labs that make ever new combinations of human behaviour, technological progress and all kinds of decision making and market shaking.

Apart from this, there is a phenomenon that’s called imperfect knowledge. Which investor or newsreader realizes that Greece and Ireland are totally different cases? Greece’s problems were fiscal. Its public sector was spending more than it could earn in taxes. Ireland’s problems are caused by a real estate bubble that has poisoned the whole financial sector. The Irish government tried to bail out banks and by doing so, weakened the whole system. Imperfect knowledge breeds imperfect foresight and imperfect policy. So far so bad.

Now, the good news. Greece, Ireland, Portugal, Spain and twelve other European countries form one monetary unit: the euro zone, a monetary space shared by 329 million citizens. If some member countries run a current account deficit, that’s no problem, as long as there are other countries, like Germany, that run a surplus. If Spain still had the peseta as a national currency, than it almost certainly would have been devaluated in relation to other currencies. As a consequence Spanish consumers would have paid more for foreign goods and services. Their own stuff however would have been cheaper abroad.

That Spain runs a deficit on its current account is the mirror image of the surplus that Germany runs. The Germans are as responsible for Spain’s deficit as Spain itself. The Germans should have bought more orange juice from farmers in Valencia and should have visited the beaches of the Costa del Sol more frequently. They still can. If they stay in their own Beerhalls and Euroland as a whole is going to run a deficit on its current account with the outer world, that’s no problem either. Maybe the euro looses some value in relation to the monetary units of the other economic powerhouses: the US, China, Japan. But the Euro zone won’t fall of the cliff. On the contrary. A devaluation of the euro makes it easier for us in Euroland to compete.

Moreover, on November 26, 2010 the euro got unexpected support from no one less than the prime minister of Russia, Vladimir Poetin. On a visit to Berlin he declared himself and his big, big country a supporter of the euro. ‘We have to get rid of the overwhelming dominant position of the US-dollar in international trade and finance,’ Poetin said, and he suggested the idea of Russia becoming a part of Euroland. First he wants to work on the realisation of a free-trade zone between the EU and Russia (a kind of extended European Economic Community). ‘The advance approach of Russia and Europe is inevitable,’ the Russian maestro said. If he is right, King Chaos had made his biggest move ever.

In the meantime the jammed motor of the European Economy has been kick-started and is running again, thanks to Germany and investors that throw off their burden of fear and become a little bit greedy again. The year 2009 was a very, very bad year after all, with a shrinking world economy: -4% on average, that’s more than ever. Even in the thirties of the last century it never happened. But the bad days are over. Over viewing the stock markets we observe the same pattern everywhere: investor’s optimism seems to outweigh the bad news labelled ‘realism’.

The stock market is a front-runner, like designers of clothes. If the fashion gets wilder and more colourful, good times are returning, I bet. If I see the girls walk by, I get the spirit and the energy of a recovered former hero too. It’s not all red and yellow yet, but brown doesn’t make it anymore. In winter fashion it’s ochre that rules men and women alike, if my eyes are right. Spring 2011 will give us all the kicks we need. If King Chaos is working it out fine.

vrijdag 26 november 2010

King Chaos makes the scene




Maxus has more friends and followers than Zero. You’ll find them in places like China, South Korea, Morocco and Germany. His biggest friend however lives in the United States of America and is called US. Maybe you are not aware of it, but you are an extra in a play about Economics, Ecology and Ethics.


Dealing with King Chaos, part 4.

by Frank van Empel

The quantity of oil in (and on) the Earth is limited. We can explore it, burn it in our furnaces, or use it for medicines. But there comes a time when there will be no oil left. The same story goes for iron, silver, uranium, and all other natural resources. That’s the general pattern of thought in physical science and biology. The world is finite and in a finite world continual growth is impossible. Basta! A matter of logic. When you take from a stock, the stock shrinks until there’s nothing left.
The future looks rather grim, taking into account the forecast that the number of people on Earth will grow from 7 billion now to 9 billion in 2050. The more people, the faster natural resources will shrink until they reach point zero and life on Earth will not be possible anymore.

This though is linear reasoning at top level. All doom stories about climate change, diminishing bio-diversity, fossil fuels et cetera are based on such way of thinking. The environmental doom stories are derived from the assumed positive causal relationship between population growth on one side and depletion and pollution on the other side. And they all lead to the same conclusion: we better hold our horses and start thinking about a higher quality of life in a Steady-State Economy. By steady state the Zero-growth apostles mean a constant stock of physical wealth (capital), and a constant stock of people (population).

In a book on 4 scenarios for the future of energy, we (nonfiXe) wrote in 2003 for then Dutch (now German) energy company Essent, we coined this Steady-State Scenario ‘Voluntary Simplicity’. According to this Zero growth scenario, people start to realise that they don’t need three cars, two refrigerators, four television sets, three holidays a year and sixty pairs of shoes in order to be happy. We can be rich without money if we act different in daily life.

An economist, who shares this pattern of thought, is John Stuart Mill. Mill already in 1857 foresaw that the human economy would some day reach a stationary state, beyond which economic growth is impossible, leaving human ingenuity the task of improving the quality of lives through arts, culture, and improved distribution of incomes. ‘I am not charmed with the ideal of life,’ Mill writes, ‘held out by those who think that the normal state of human beings is that of struggling to get on; that the trampling, crushing, elbowing, and treading on each other’s heels which form the existing type of social life, are the most desirable lot of human kind, or anything but the disagreeable symptoms of one of the phases of industrial progress.’

Sounds good, but a little bit unrealistic. Mill is an odd character in the Land of Growth and Wealth Adepts. The mainstream of economists thinks and acts in a completely different way, although they too have a linear approach to keep their models simple. When there’s no oil left, they say, we’ll find substitutes. They even think it’s likely that the world can get along without natural resources. If cars cannot run on gasoline anymore, we humans let them run on water and air (hydrogen). The sky is the limit. If God doesn’t solve the problem of scarcity, the engineers and entrepreneurs will.

Maybe you are not aware of it, but you are an extra in a play about Economics, Ecology and Ethics. This play has four characters:
1. the sympathetic, idealistic, green and egalitarian fool Zero tells the truth, but nobody listens to him; most people think he’s a dreamer with a lot of imagination;
2. Prince Maxus, who wants to live to the max, who doesn’t have to worry about money and knows how to spend it, a metaphor for the US;
3. King Chaos, who takes care that nothing’s going to happen according to expectations, predictions, plans, whatever.
4. Lady Lay, who has to choose on behalf of the people, falls in love with Zero, but marries Maxus, and is being abused by Chaos.

Maxus has more friends and followers than Zero. You’ll find them in places like China, South Korea, Morocco and Germany. His biggest friend however lives in the United States of America and is called US. Without overstretching the metaphor of the world economy as a play, we conclude that Wealth underlies America's sense of itself as a special country. It's also cited as evidence that America is better than other economies on a range of variables, from economic freedom to optimism to business savvy to work ethic.

Statistics show the flexibility, creativity and mobility of Americans. Economic gloom and doom aside, America remains the world’s richest large country. Of course, there are fools too in America, like former vice-president Al Gore, who gave a splendid presentation about climate change for the whole World, but is loosing his power of words and licked graphics since the financial crises attracts all attention of the public.

When the economy is down and growth is stalled, nobody’s getting applause for a plea for Zero-growth or voluntary simplicity. Especially not the sick – Greece, Ireland – who need financial injections. No lip service for Zero anymore. Maxus rules the stock market and takes every occasion to give positive signals. The American Dream has to be fulfilled. Maxus won’t stop until every American is a millionaire. As a consequence of that drive, the economy bounces back after each crisis, to arrive at a higher ground with more wealth for all after all. Fear is swept aside by greed over and over again. Thirty years after the Club of Rome predicted the end of growth, the economy is performing the same trick over and over; running on oil and feeding ever more mouths. Ecology still is in the doldrums.

The Angles are with Maxus, we think, but Zero knows better. In the end it’s King Chaos who decides what’s really going to happen. And because he’s so unpredictable it is of no use to plan the future. We better stick to some global principles like Mill did in his books On Liberty and Principles of Political Economy, or just listen to our hearts, knowing that everything can change in a whisper. If we want to survive as a species we’ll have to love change.

That is were you come in, the extra player. You may think your acts don’t make a difference on a global level, but they do. You, me, each and every individual make changes happen by our little decisions and our reactions to the decisions of the other, every day again.

Every individual is able to create the world he or she wants to live in. We do so by our behaviour, by using our creativity to find solutions for appearing problems and by the government we accept as a ruler. Maybe Mill was right to formulise ethics as the main force in the world, individual ethics. Martin Luther King, Gandhi and other great change agents followed Mills footsteps. They decided to work on change to come closer to the world they liked to live in. Doing so, they got the support of King Chaos and overthrew every linear reasoning on the future, their contemporaries thought of.

donderdag 18 november 2010

The Frontiers of Exact Science



Disequilibrium Economics Revisited, insights after 30 years of journalism and writing on economics and politics.
Dealing with King Chaos, part 3.




By Frank van Empel

In 1980 I finished my studies at the University of Tilburg in the Netherlands with a thesis about disequilibrium economics. I tried to visualise the process of adaptation in a nonlinear model, by distinguishing three levels in economical processes:
1. the potential- or ex-ante level of intentions and expectations;
2. the effective level, an inbetween level of adapted intentions and expectations;
3. the realised- or ex-post level.

Conventional economists usually take only level 3 into account. They postulate that markets are cleared in no time, faster than sunshine. Moreover the economic players (producers, consumers, middlemen and the like) in scientific models are supposed to have all information about what’s going on in the heads, bodies and souls of consumers, producers, investors, et cetera. They have a perfect view on what is coming. The future holds no surprises or no adventures.
All of this has little to do with reality. In the real world, people go to a market with particular intentions and expectations. Once arrived they usually confront a total different situation. They have to adapt their intentions and accept a compromise, to make a deal. The same kind of adaptation process can be noticed on the demand- as well as on the supply-side of markets in general and the labour market specifically. See box (just for mathematic freaks and whizz people).



The hyperbolic tangent (see box above) is used for modeling complex nonlinear dynamic processes. The S-curve represents a tension. It’s a weight that goes from +1 to -1. At the far end it determines if a variable is positive or negative. It’s something like laughing versus crying or construction versus destruction. If you insert such a tension in just one equation of a traditional linear equilibrium model, it immediately becomes nonlinear. By that we mean, that the outcomes are completely unpredictable.

Simply stated, something is linear if its output is proportional to its input. If, when you're reading late at night, you want twice as much illumination (output) to see the book, then you double the number of light bulbs (input) by bringing over one more similar lamp. Something is nonlinear if its output is not directly proportional to the input. Nonlinear problems are of interest to engineers, physicists and mathematicians because most physical systems are inherently nonlinear in nature.

Nonlinear equations are difficult to solve though. They give rise to interesting phenomena such as chaos. The weather is famously chaotic, where simple changes in one part of the system produce complex effects throughout. Nonlinear systems are irregular, unstable, even chaotic. That leads almost always to unexpected developments. Life is nonlinear. If you’re in your twenties, you simply don’t know where and with who you’ll be when you’re fifty-plus. The human body loves nonlinearity too. The time between two heartbeats differs continuously. Should the time between two beats be the same, better get yourself to the hospital: A heart attack is in the making.

Another nonlinear body process is caused by the army of the Emperor of anomalies - cancer – inside, a chaotic, unpredictable process too. According to the mainstream of scientists nature is actually in a continuing state of disturbance and fluctuation, like the lives of most people, and the economy, yet most economists still don’t know how to handle nonlinearity in their models, like my own professor in Tilburg 30 years ago.

In his book Power and Chaos, published in 1980, prof. dr. D.B.J. Schouten acknowledged that an ‘endogenising of the elasticity coefficients’, which mirrors the amount of wage- and price-competition, is very complex. Schouten: ‘By doing this, our models are no longer linear, which in an inconceivable way raises complexity. That brings us to the frontiers of the exact economy practice.’

###

dinsdag 16 november 2010

Living in a non-linear world




(part two of Dealing with King Chaos)

by Frank van Empel

’We have to deal with the world as we find it,’ David Axelrod, President Obama’s top political advisor said two weeks after the Democrats lost their power in the House of Representatives. The World Obama finds is the world we all are living in for already a pretty long time. It’s a non-linear world: irregular, unstable and chaotic. Not the kind of place where parents want their children to go.

The traditional, romantic wisdom is that in the past we were better of. The world was not overcrowded and people were no slaves of Mr. Greed and Mrs. Jealousy. We all lived in a State of Nature. Nature, undisturbed by human influence, was characterised by a certain kind of harmony, balance and order.

During the last three centuries we found out that this whole image is false. If there is a State of Nature, then it’s a State that is characterised by disequilibrium, differences, defects and mutations. Nature is, and always was, in a continuing state of disturbance and fluctuation. Change and turmoil is the rule.

The house we all live in shows such an example of apparent linearity: the human body. Let’s take a look in the Masters Room: the heart, which has an eternal triangle with blood and brain. It exports adrenaline (a hormone) to the blood and imports acetylcholine (a neurotransmitter) from the brain. Adrenaline speeds up the heart rate and activates the emotional brain. Acetylcholine slows down both. In other words: the heart has an accelerator and a brake. We need both functions for cornering through the unpredictable angles of life. Stress, fear, depressions and rage stimulate the production of adrenaline. Pleasure, sympathy, gratitude and nice thoughts give way to a relaxed heartbeat.

Accelerating and slamming on the brakes are irregular activities. The breaks between two heartbeats differ.
When the rhythm of the heart is completely regular, alarm bells should start to ring. It’s the signal for a heart attack in the making. Exactly the opposite of what one would expect.
(to be continued)

donderdag 11 november 2010

How to deal with King Chaos




Written by Frank van Empel


All kinds of scientists have constructed a fantasy linear world, where ‘b’ is born out of ‘a’ and ‘b’ gives birth to ‘c’. It’s a pity that such an orderly fantasy world doesn’t exist. In reality we have to deal with King Chaos, ruler of a non-linear World where almost nothing happens in line with expectations.

What is a sustainable development in that kind of shaky context? To answer that question we have to travel to the frontiers of science, there where Wilderness – the Wolf - tames Predictability, the Cat.

Some people call themselves scientists. They have strict guidelines. Most of the times – especially when the scientists are still young and eager -they formulate something they want to know as a hypothesis and they add a theory that explains why the hypothesis almost certainly has to be valid. Then they have to find some evidence. Last but not least they put the whole thing to the test. If they’re lucky they find a law, a new kind of order that nobody has noticed before.

A law in economics, biology, physics, psychology or whatever science makes it possible to foresee and predict the future. In theory. In reality the forseeable future of the past never happens. It’s the unpredictable that rules reality and the outcomes of a lot of scientific tests as well. The shortcomings of most scientists have to do with such a strong focus on linearity that they miss the entrance to a fascinating world: the world of non-linearity, where Chaos is King.

(will be continued)

zaterdag 6 november 2010

Towards a State of Cities



by Frank van Empel

The World as a whole is a motley collection of nation states. Their wealth is expressed in terms of Gross Domestic Product (GDP). A measure that doesn’t take into account environmental damage, nor the use of materials and fossil fuels, freedom, health, happiness et cetera. We are used to this and never question its value. The same goes for next assumption: Like almost all famous economists we take the nation as a standard for comparison. We simply don’t realise that nations basically are political and military entities. With almost no exception, our current nations came into being in the first place through bloody military force, not through free market mechanisms. As a matter of fact wealth was created in the cities by entrepreneurs, but was not at their disposal. Rulers tapped it off to finance their wars and other adventures. In essence, nothing changed during all those centuries in between now and then. Citizens and corporations still pay taxes to the government that still claims to know best how to spend the money for more growth and national income.

Militarists and politicians love hierarchy. Their favourite way of organising is topdown. The economy on the other hand is blowing bubbles: bottom up, in a chaotic way at first sight. The management of that kind of processes takes place close to where it’s all happening: in the cities, towns and hamlets. According to the legendary urbanist and activist Jane Jacobs and a growing group of followers like Richard Florida, that is the way to understand the growth and decline of economies.
A relatively small country like the Netherlands can be split up in about thirty city regions. Four of them are situated in the Province of Noord-Brabant, surrounding the cities of Breda, Tilburg, ’s-Hertogenbosch and Eindhoven. Each region has three layers: the city itself, the surrounding suburbs and what is called the ‘exurbs’: rural communities that, due to proximity, are destined to become (part of the) suburbs too, as a consequence of further growth. The more economic activity a city generates, the more people it attracts. And the more cash flow or added value that extra activity brings in, the faster the city region expands. The more energy, creative and innovative power a city has, the faster the boundaries of the city and the suburbs move outward to swallow the exurbs. As economic growth comes to a halt however, the city and suburbs grow backwards, they impoverish and in the worst case fall apart.

How do you build up a dynamic, cash flow generating, value adding city region that attracts creative, value adding people from all over the world? How does a city turn itself into an economic powerhouse, an economic sun for the whole region and the surrounding area? What are the ingredients of a successful city pie? How does a city communicate to the rest of the World that it’s there, ready to give other people, organisations and city regions a boost too? How do you keep the motor running? How do you turn the development of a city region into a sustainable development? A lot of questions have to be answered. A lot of research has to be done.

Every city has its own culture and atmosphere. All kinds of professionals - often young (the so-called young urban professional or yup) - skilled migrants, homosexuals, artists and other unconventional people, are attracted by the dense and dynamic city, that functions as an economic, social and cultural sun. Every city has its own personality. A reflection of the residents. No two cities are the same. Certain personalities and economic activities flock to certain cities and make new connections. By doing that, they make up a special clustering of people and firms, that can be marketed as a unique selling point (usp) of the City in relation to other cities. If a City accentuates its strong points and invests in citybranding, that will pay off. Most cities have the power to shape their own identities and destinies, but lack the means. Their capacity to introduce new taxes or levies and/or raise the old ones, is limited. For the same reason a city administration of justice, a city defence and city foreign affairs are not done. It undermines the status and authority of the national government. In the meantime the national government gives up more and more parts of the higher ground to another player: the European Union. This union of states determines more and more the playing field for municipalities, big cities and regions (provinces).

There is another basic notion that needs correction. Most democracies old style (one man, one vote and the majority decides) are in the middle of a legitimacy crisis. People don’t accept every decision from the rulers any longer. As a consequence the outcomes of the political (democratic) process do not guarantee a balanced development of the welfare state and social harmony anymore. As the Tea party in the US and the rightwing, populist radicals in Europe show there is a big gap between the world of Politics (with capital P) and that of Ordinary People. A gap filled by movements from the right side of the political spectrum. If we dig deeper, we find out that the traditional left/right division of the political landscape doesn’t hold anymore. Self-secured, skilled, eloquent citizens take part in horizontal (social) networks and make crossovers, while political institutions stick to old fashioned, vertical, hierarchical, command & control structures.

In the sixties and seventies one was a leftwinger if one favoured redistribution of income, knowledge and power. One was a rightwinger if one supported the free market, which was equivalent for ‘the richest getting richer, the poor getting poorer’. Today the main topics are sustainable development and immigration. On these topics people are not easy to categorize into left, right or the middle. Besides that the focus is now more on practical questions, like: are you in favour of or against a certain highway or building project? The answers to this kind of questions can be found within a city or on a regional level between cities.

Four levels of government and administration – EU, nation state, region/province and city – is too much. Something has to give. The cities have strong cards. In the Netherlands they will grow out to some 30 regions or City States new style, or to much bigger entities as Brainport (South-East of the line Tilburg-Den Bosch) or the South (Noord-Brabant, Limburg, Zeeland). All cities and city regions have their usp’s. Nashville in the US is an extreme example. With its cluster of musicians, composers, studios, publishers and record companies it’s the most concentrated centre of commercial music-making in the world.

Jane Jacobs already in 1984 foresaw a division of the single national sovereignty into a family of smaller regional sovereignties (City States). One step further is the privatisation of city-regions. The concept of privatisation is simple. It’s the transfer of property from public or cooperative ownership to private ownership. Then the dream of the regular urbanist, the transition from a Nation State to a City State and finally a State of Cities, is a fact.

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Op 11 april 2015 kwam 'Parkinson Hotel' uit. Een uitgave waarin Franky de dialoog aan gaat met Parkie. Zie: http://www.studiononfixe.nl/parkinson-hotel/ Deze blog is een aanvulling hierop. Doel is o.a. de bekendheid met de ziekte te vergroten, ook voor hen die net als ik een ongenode gemene gast herbergen en hun partners. Ik hoop mensen met de ziekte van Parkinson te inspireren om niet bij de pakken neer te zitten. Sinds de diagnose Parkinson’s Disease, voorjaar 2004, strijd ik tegen de ziekte, tegen toenemende medicatie en de bijwerkingen van pillen. Ooit zei een collega dat ik 'sneller typte dan God kon lezen'. Ik was politiek en economisch redacteur van o.a. NRC, Elsevier en Haagse Post (in omgekeerde volgorde). De ziekte van Parkinson staat bekend om haar progressiviteit, de symptomen worden met de tijd erger. Mijn verzet bestond en bestaat uit het trainen van hersenen en lichaam. Ik promoveerde in 2012, voetbal iedere zondag, doe aan Nordic Walking en andere sporten. Ik speel gitaar. En bovenal, ik blijf schrijven. Allemaal dingen die ik graag doe. Op 24 april 2015 onderga ik een 'deep brain stimulation' en schakel ik naar hogere frequenties van levensgenot.